DORIAN CHEEKS, Plaintiff-Appellant, v. FREEPORT PANCAKE HOUSE, INC., W.P.S. INDUSTRIES, INC., Defendants-Appellees.
Docket No. 14-299-cv
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August 7, 2015
August Term, 2014 (Argued: November 14, 2014)
Dorian Cheeks appeals, pursuant to
Affirmed.
ABDUL HASSAN, Queens Village, NY, for Plaintiff-Appellant Dorian Cheeks.
JEFFREY MEYER, Kaufman, Dolowich & Voluck, LLP (Keith Gutstein, on the brief), Woodbury, NY, for Defendants-Appellees Freeport Pancake House, Inc. and W.P.S. Industries, Inc.
Laura Moskowitz, Senior Attorney, U.S. Department of Labor, Office of the Solicitor, (M. Patricia Smith, Solicitor of Labor, Jennifer S. Brand, Associate Solicitor, Paul L. Frieden, Counsel for Appellate Litigation, on the brief), Washington, D.C., for Amicus Curiae U.S. Department of Labor.
DORIAN CHEEKS, Plaintiff-Appellant, v. FREEPORT PANCAKE HOUSE, INC., W.P.S. INDUSTRIES, INC., Defendants-Appellees.
Docket No. 14-299-cv
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August 7, 2015
Dorian Cheeks appeals, pursuant to
BACKGROUND
Cheeks worked at both Freeport Pancake House, Inc. and W.P.S. Industries, Inc. (together, “Freeport Pancake House”) as a restaurant server and manager over the course of several years. In August 2012, Cheeks sued Freeport Pancake House seeking to recover overtime wages, liquidated damages and attorneys’ fees under both the FLSA and New York Labor Law. Cheeks also alleged he was demoted, and ultimately fired, for complaining about Freeport Pancake House‘s failure to pay him and other employees the required overtime wage. Cheeks sought back pay, front pay in lieu of reinstatement, and damages for the unlawful retaliation. Freeport Pancake House denied Cheeks’ allegations.
After appearing at an initial conference with the district court, and
Rather than disclose the terms of their settlement, the parties instead asked the district court to stay further proceedings and to certify, pursuant to
DISCUSSION
The current appeal raises the issue of determining whether parties may settle FLSA claims with prejudice, without court approval or DOL supervision1
Subject to Rules 23(e), 23.1(c), 23.2, and 66 and any applicable federal statute, the plaintiff may dismiss an action without a court order by filing:
(i) a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment; or
(ii) a stipulation of dismissal signed by all parties who have appeared.
The FLSA is silent as to Rule 41. We must determine, then, if the FLSA is an
We start with a relatively blank slate, as neither the Supreme Court nor our sister Circuits have addressed the precise issue before us. District courts in our Circuit, however, have grappled with the issue to differing results. Those requiring court approval of private FLSA settlements regularly base their analysis on a pair of Supreme Court cases: Brooklyn Savings Bank v. O‘Neil, 324 U.S. 697 (1945) and D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946).
Brooklyn Savings involved a night watchman who worked at Brooklyn Savings Bank for two years. 324 U.S. at 699. The watchman was entitled to overtime pay for his work, but was not compensated for his overtime while he worked for the bank. Id. at 700. The watchman left the bank‘s employ, and two years later the bank computed the statutory overtime it owed him and offered the
The Supreme Court held that in the absence of a genuine dispute as to whether employees are entitled to damages, employees could not waive their rights to such damages in a private FLSA settlement. Id. at 704. Because the only issue before the court was the issue of liquidated damages, which were a matter of statutory calculation, the Court concluded that there was no bona fide dispute between the parties as to the amount in dispute. Id. at 703. The Court noted that the FLSA‘s legislative history “shows an intent on the part of Congress to protect certain groups of the population from substandard wages and excessive hours which endangered the national health and well-being and the free flow of goods in interstate commerce.” Id. at 706. In addition, the FLSA “was a recognition of the fact that due to the unequal bargaining power as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered national health and efficiency and as a result the free movement of goods in interstate
A year later, in D.A. Schulte, the Supreme Court answered that question in part, barring enforcement of private settlements of bona fide disputes where the dispute centered on whether or not the employer is covered by the FLSA. 328 U.S. at 114. Again, the Supreme Court looked to the purpose of the FLSA, which “was to secure for the lowest paid segment of the nation‘s workers a subsistence wage,” and determined “that neither wages nor the damages for withholding them are capable of reduction by compromise of controversies over coverage.” Id. at 116. However, the Supreme Court again specifically declined to opine as to “the possibility of compromises in other situations which may arise, such as a dispute over the number of hours worked or the regular rate of employment.” Id. at 114–15.
In Lynn‘s Foods, an employer sought a declaratory judgment that the private settlements it had entered into with its employees absolved it of any future liability under the FLSA. Id. at 1351–52. The private settlements were entered into after the DOL found the employer “was liable to its employees for back wages and liquidated damages,” id. at 1352, but were not made with DOL
In rejecting the settlements, the Eleventh Circuit noted that “FLSA rights cannot be abridged by contract or otherwise waived because this would nullify the purposes of the statute and thwart the legislative policies it was designed to effectuate.” Id. (internal quotation marks omitted). The court reasoned that requiring DOL or district court involvement maintains fairness in the settlement process given the great disparity in bargaining power between employers and employees. Id. The Eleventh Circuit noted that the employer‘s actions were “a virtual catalog of the sort of practices which the FLSA was intended to prohibit.” Id. at 1354. For example, the employees had not brought suit under the FLSA and were seemingly “unaware that the Department of Labor had determined that Lynn‘s owed them back wages under the FLSA, or that they had any rights at all under the statute.” Id. Despite that, the employer “insinuated that the employees were not really entitled to any back wages,” and suggested “that only malcontents would accept back wages owed them under the FLSA.” Id. The employees were not represented by counsel, and in some cases did not speak English. Id. The Eleventh Circuit noted that these practices were “illustrative of
The Fifth Circuit, however, concluded that a private settlement agreement containing a release of FLSA claims entered into between a union and an employer waived employees’ FLSA claims, even without district court approval or DOL supervision. Martin v. Spring Break ‘83 Prods., L.L.C., 688 F.3d 247, 253–57 (5th Cir. 2012). In Martin, the plaintiffs were members of a union, and the union had entered into a collective bargaining agreement with the employer. Id. at 249. The plaintiffs filed a grievance with the union regarding the employer‘s alleged failure to pay wages for work performed by the plaintiffs. Id. Following an investigation, the union entered into an agreement with the employer settling the disputed compensation for hours worked. Id. However, before the settlement
The Fifth Circuit concluded that the agreement between the union and employer was binding on the plaintiffs and barred the plaintiffs from filing a FLSA claim against the employer. Id. at 253–54. The Fifth Circuit carved out an exception from the general rule barring employees’ waiver of FLSA claims and adopted the rationale set forth in Martinez v. Bohls Bearing Equipment Co., 361 F. Supp. 2d 608, 633 (W.D. Tex. 2005) (“[A] private compromise of claims under the FLSA is permissible where there exists a bona fide dispute as to liability.”). The Fifth Circuit reasoned that “[t]he Settlement Agreement was a way to resolve a bona fide dispute as to the number of hours worked–not the rate at which Appellants would be paid for those hours–and though Appellants contend they are yet not satisfied, they received agreed-upon compensation for the disputed number of hours worked.” Martin, 688 F.3d at 256. The Fifth Circuit noted that the concerns identified in Lynn‘s Foods–unrepresented workers unaware of their FLSA rights–“[were] not implicated.” Id. at 256 n.10. Martin, however, cannot be read as a wholesale rejection of Lynn‘s Foods: it relies heavily on evidence that a bona fide dispute between the parties existed, and that the employees who
While offering useful guidance, the cases discussed above all arise in the context of whether a private FLSA settlement is enforceable. The question before us, however, asks whether the parties can enter into a private stipulated dismissal of FLSA claims with prejudice, without the involvement of the district court or DOL, that may later be enforceable. The parties do not cite, and our research did not reveal, any cases that speak directly to the issue before us: whether the FLSA is an “applicable federal statute” within the meaning of Rule 41(a)(1)(A). Nor are we aided by the Advisory Committee‘s notes, which simply state that the language “any applicable federal statute” serves to “preserve” provisions in “such statutes as”
The Picerni court concluded that:
Nothing in Brooklyn Savings, Gangi, or any of their reasoned progeny expressly holds that the FLSA is one of those Rule 41–exempted statutes. For it is one thing to say that a release given to an employer in a private settlement will not, under certain circumstances, be enforced in subsequent litigation—that is the holding of Brooklyn Savings and Gangi—it is quite another to say that even if the parties want to take their chances that their settlement will not be effective, the Court will not permit them to do so.
Id. at 373.
The Picerni court also noted that “the vast majority of FLSA cases . . . are simply too small, and the employer‘s finances too marginal, to have the parties take further action if the Court is not satisfied with the settlement.” Id. at 377.
Seemingly unpersuaded by Picerni, the majority of district courts in our Circuit continue to require judicial approval of private FLSA settlements. See, e.g., Lopez v. Nights of Cabiria, LLC, --- F. Supp. 3d ----, No. 14-cv-1274 (LAK), 2015 WL 1455689, at *3 (S.D.N.Y. March 30, 2015) (“Some disagreement has arisen among district courts in this circuit as to whether such settlements do in fact require court approval, or may be consummated as a matter of right under Rule 41. The trend among district courts is nonetheless to continue subjecting FLSA settlements to judicial scrutiny.”) (citation omitted); Armenta v. Dirty Bird Grp., LLC, No. 13cv4603, 2014 WL 3344287, at *4 (S.D.N.Y. June 27, 2014) (same) (collecting cases), Archer v. TNT USA Inc., 12 F. Supp. 3d 373, 384 n.2 (E.D.N.Y. 2014) (same); Files, 2013 WL 1874602, at *1–3 (same).
In Socias v. Vornado Realty L.P., the district court explained its disagreement with Picerni:
Low wage employees, even when represented in the context of a pending lawsuit, often face extenuating economic and social circumstances and lack equal bargaining power; therefore, they are more susceptible to coercion or more likely to accept unreasonable, discounted settlement offers quickly. In recognition of this problem, the FLSA is distinct from all other employment statutes.
297 F.R.D. 38, 40 (E.D.N.Y. 2014). The Socias court further noted that “although employees, through counsel, often voluntarily consent to dismissal of FLSA claims and, in some instances, are resistant to judicial review of settlement, the purposes of FLSA require that it be applied even to those who would decline its protections.” Id. at 41 (internal quotation marks, alteration, and emphasis omitted). Finally, the Socias court observed that judicial approval furthers the purposes of the FLSA, because “[w]ithout judicial oversight, . . . employers may be more inclined to offer, and employees, even when represented by counsel, may be more inclined to accept, private settlements that ultimately are cheaper to the employer than compliance with the Act.” Id.; see also Armenta, 2014 WL 3344287, at *4 (“Taken to its logical conclusion, Picerni would permit defendants to circumvent the FLSA‘s ‘deterrent effect’ and eviscerate FLSA protections.”).
We conclude that the cases discussed above, read in light of the unique
Examining the basis on which district courts recently rejected several proposed FLSA settlements highlights the potential for abuse in such settlements, and underscores why judicial approval in the FLSA setting is necessary. In Nights
We are mindful of the concerns articulated in Picerni, particularly the court‘s observation that the “vast majority of FLSA cases” before it “are simply too small, and the employer‘s finances too marginal,” for proceeding with litigation to make financial sense if the district court rejects the proposed settlement. 925 F. Supp. 2d at 377 (noting that FLSA cases tend to “settle for less than $20,000 in combined recovery and attorneys’ fees, and usually for far less than that; often the employee will settle for between $500 and $2000 dollars in unpaid wages.”). However, the FLSA is a uniquely protective statute. The burdens described in Picerni must be balanced against the FLSA‘s primary remedial purpose: to prevent abuses by unscrupulous employers, and remedy the disparate bargaining power between employers and employees. See Brooklyn Sav. Bank, 324 U.S. at 706-07. As the cases described above illustrate, the need for such employee protections, even where the employees are represented by counsel, remains.
For the reasons given above, we affirm and remand for further proceedings consistent with this opinion.